Encore Capital Group Inc · NASDAQ:ECPG
Encore Capital — Q1 2022 Earnings Presentation
35 slides from Encore Capital's earnings presentation, May 4, 2022
Slide 1: First Quarter 2022 Financial Results
First Quarter 2022 Financial Results Encore Capital Group, Inc. May 4, 2022 Exhibit 99.1
Slide 2: Legal Disclaimers
Encore Capital Group, Inc. 2 Legal Disclaimers The statements in this presentation that are not historical facts, including, most importantly, those statements preceded by, or that include, the words “will,” “may,” “believe,” “projects,” “expects,” “anticipates” or the negation thereof, or similar e
Slide 3: In Q1 we continued to deliver best-in-class returns and solid cash flows
Encore Capital Group, Inc. 3 In Q1 we continued to deliver best-in-class returns and solid cash flows o Exceptional Q1 performance driven by continued stronger-than-expected collections in the U.S. leading to higher revenues in the current period and an increase in future period collection expectati
Slide 4: Our Business and Our Strategy
Encore Capital Group, Inc. 4 Our Business and Our Strategy o Purchase NPL portfolios at attractive cash returns o Focus on the consumer and ensure the highest level of compliance o Meet or exceed collection expectations o Maintain efficient cost structure o Minimize cost of funding o Market Focus o
Slide 5: As credit card balances rise, supply will start increasing again
Encore Capital Group, Inc. 5 As credit card balances rise, supply will start increasing again 60 65 70 75 80 85 90 95 100 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21 Feb-21 Mar-21 Apr-21 May-21 Jun-21 Jul-21 Aug-21 Sep-21 Oct-21 Nov-21 Dec-21 Jan
Slide 6: Market Focus: MCM collections in Q1 were higher than expected
Encore Capital Group, Inc. 6 Market Focus: MCM collections in Q1 were higher than expected MCM Collections (in $M) Q1 2021 Q2 2021 Q3 2021 Q4 2021 Q1 2022 371 407 436 o MCM collections in Q1 were 115% of ERC at Dec 31, 20211 o As previously reported, MCM collections for the full year 2021 were 124%
Slide 7: MCM's collections performance is driving increased collection expectations and multiple expansion
Encore Capital Group, Inc. 7 MCM’s collections performance is driving increased collection expectations and purchase price multiple expansion 2.0 2.1 2.2 2.4 2.42.4 2.4 2.6 2.8 2.4 0.0 0.5 1.0 1.5 2.0 2.5 3.0 2017 2018 2019 2020 2021 Initial Multiple Multiples as of Q4 2021 MCM Portfolio Purchase Pr
Slide 8: Market Focus: Cabot delivered solid performance in Q1
Encore Capital Group, Inc. 8 Market Focus: Cabot delivered solid performance in Q1 o Cabot collections of $148M in Q1 declined 9% compared to Q1 2021, primarily due to lower portfolio purchasing in recent quarters o Cabot’s portfolio purchases were $75M with purchase price multiple of 2.2x o In a co
Slide 9: Competitive Advantage: Continued significant cash generation
Encore Capital Group, Inc. 0 200 400 600 800 1,000 1,200 1,400 1,600 2019 2020 2021 LTM Q1 2022 Adjusted EBITDA Collections applied to principal balance 9 Competitive Advantage: Continued significant cash generation Adjusted EBITDA + Collections Applied to Principal Balance (in $M) Our cash generati
Slide 10: Competitive Advantage: Delivering the best returns in the debt buying industry
Encore Capital Group, Inc. 10 Competitive Advantage: Delivering the best returns in the debt buying industry 10.8% 12.5% 15.2% 17.6% 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% 2019 2020 2021 LTM Q1 2022 Pre-Tax Return on Invested Capital1 o ROIC takes into account both the performance of our collections
Slide 11: Balance Sheet Strength: Leverage remains at the low end of our target range
Encore Capital Group, Inc. Target Leverage Ratio Range 11 Balance Sheet Strength: Leverage remains at the low end of our target range 4.3x 3.4x 2.7x 2.5x 2.5x 2.4x 2.8x 2.7x 2.4x 2.1x 1.9x 1.9x 0 1 2 3 4 5 6 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2
Slide 12: Detailed Financial Discussion
Encore Capital Group, Inc. 12 Detailed Financial Discussion
Slide 13: Q1 2022 Key Financial Measures
Encore Capital Group, Inc. 13 Q1 2022 Key Financial Measures Q1 2022 vs. Q1 2021 Collections $519M -14% Revenues $500M +20% Portfolio Purchases $170M 0% ERC1 $7.80B -6% Operating Expenses $235M -6% GAAP Net Income2 $176M +86% GAAP EPS $6.40 +115% LTM Pre-Tax ROIC3 17.6% +180 bps Leverage Ratio4 1.9x
Slide 14: Collections of $519M in Q1 2022 were higher than expected
Encore Capital Group, Inc. 14 Collections of $519M in Q1 2022 were higher than expected Note: Year-to-date global collections through Q1 2022 were 108%, U.S. collections were 115% and Europe collections were 94% of Dec 31, 2021 ERC forecast, respectively, for collections related to portfolios purcha
Slide 15: Persistent stronger-than-expected collections led to an additional $225M in U.S. ERC
Encore Capital Group, Inc. 15 Persistent stronger-than-expected collections led to an additional $225M in U.S. ERC 84 85 38 18 Q2-Q4 2022 2023 2024 >2024 Changes to U.S. ERC by Collection Year (in $M) 75% of increase expected to be collected by the end of 2023
Slide 16: Revenues of $500M in Q1 2022 includes $123M of changes in expected future recoveries
Encore Capital Group, Inc. 16 Revenues of $500M in Q1 2022 includes $123M of changes in expected future recoveries from U.S. portfolios Revenues by Geographic Location (in $M) Q1 2021 Q2 2021 Q3 2021 Q4 2021 Q1 2022 United States Europe Other 417 428 413 357 500 Note: Encore consolidated changes in
Slide 17: Introducing a new metric - Cash Efficiency Margin
Encore Capital Group, Inc. 17 Introducing a new metric - Cash Efficiency Margin 2,310 2,422 2,449 2,428 2,335 57.8% 57.8% 58.9% 59.6% 58.6% Q1 2021 Q2 2021 Q3 2021 Q4 2021 Q1 2022 LTM Cash Receipts LTM Cash Efficiency Margin LTM Cash Efficiency Margin and LTM Cash Receipts (in $M) Note: Last Twelve
Slide 18: Further strengthened our diversified funding structure in Q1
Encore Capital Group, Inc. 18 Further strengthened our diversified funding structure in Q1 o Amended global senior facility in Q1 to expand its capacity by $90M, to $1.1B, and extend the maturity from 2025 to 2026 o Retired $150M principal amount of convertible notes that matured in March with cash,
Slide 19: ESG remains a strong focus area for us in 2022
Encore Capital Group, Inc. Environmental, Social & Governance (ESG) remains a strong focus area for us in 2022 with key milestones to come Perform Greenhouse Gas (GHG) Baseline Assessment Gather and Assess Data to Set Targets for 2023 and Beyond Sustainability Accounting Standards Board (SASB) & Tas
Slide 20: Our Financial Priorities
Encore Capital Group, Inc. 20 Our Financial Priorities o Preserve financial flexibility o Target leverage1 between 2.0x and 3.0x o Maintain a strong BB debt rating o Portfolio purchases at attractive returns o Strategic M&A o Share Repurchases Deliver strong ROIC through the credit cycle Balance She
Slide 21: Appendix
Encore Capital Group, Inc. 21 Appendix
Slide 22: Key Financial Measures by Year
Encore Capital Group, Inc. 22 Key Financial Measures by Year 2019 2020 2021 Collections $2.03B $2.11B $2.31B Revenues $1.40B $1.50B $1.61B Portfolio Purchases $1.00B $0.66B $0.66B ERC1 $7.83B $8.53B $7.75B GAAP Net Income2 $168M $212M $351M GAAP EPS $5.33 $6.68 $11.26 Pre-Tax ROIC3 10.8% 12.5% 15.2%
Slide 23: Key Financial Measures by Quarter
Encore Capital Group, Inc. 23 Key Financial Measures by Quarter 1) 180-month Estimated Remaining Collections 2) Attributable to Encore 3) See appendix for calculation of Pre-Tax ROIC (Return on Invested Capital) 4) LTM GAAP ROAE (Return on Average Equity) defined as LTM GAAP net income ÷ average sto
Slide 24: Debt/Equity and Leverage Ratios
Encore Capital Group, Inc. 24 Debt/Equity and Leverage Ratios 2021 2022 Q1 Q2 Q3 Q4 Q1 Debt / Equity1 2.5x 2.2x 2.0x 2.5x 2.4x Leverage Ratio2 2.1x 1.9x 1.8x 1.9x 1.9x 1) GAAP Borrowings ÷ Total Encore Capital Group, Inc. stockholders’ equity 2) Leverage Ratio defined as Net Debt ÷ (LTM Adjusted EBI
Slide 25: Non-GAAP Financial Measures
Encore Capital Group, Inc. 25 Non-GAAP Financial Measures This presentation includes certain financial measures that exclude the impact of certain items and therefore have not been calculated in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”). The Company has included informat
Slide 26: Reconciliation of Adjusted EBITDA to GAAP Net Income
Encore Capital Group, Inc. 26 Reconciliation of Adjusted EBITDA to GAAP Net Income (Unaudited, in $ thousands) 2019 2020 2021 GAAP net income, as reported $ 168,909 $ 212,524 $ 351,201 Interest expense 217,771 209,356 169,647 Loss on extinguishment of debt 8,989 40,951 9,300 Interest income (3,693)
Slide 27: Reconciliation of Adjusted EBITDA to GAAP Net Income (Quarterly)
Encore Capital Group, Inc. 27 Reconciliation of Adjusted EBITDA to GAAP Net Income (Unaudited, in $ thousands)) Q2 2020 Q3 2020 Q4 2020 Q1 2021 Q2 2021 Q3 2021 Q4 2021 Q1 2022 GAAP net income (loss), as reported $ 130,784 $ 55,107 $ 37,212 $ 94,765 $ 96,787 $ 83,566 $ 76,083 $ 175,749 Interest expen
Slide 28: Calculation of ROIC
Encore Capital Group, Inc. 28 Calculation of ROIC Reconciliation of Adjusted Income from Operations (Unaudited, in $ thousands, except percentages) 2019 2020 2021 Numerator GAAP Income from operations $ 446,345 $ 533,562 $ 633,272 Adjustments:1 CFPB settlement fees2 --- 15,009 --- Acquisition, integ
Slide 29: Calculation of ROIC (Last Twelve Months)
Encore Capital Group, Inc. 29 Calculation of ROIC Reconciliation of Adjusted Income from Operations Last Twelve Months Ended (Unaudited, in $ thousands, except percentages) Mar 31,2021 Jun 30, 2021 Sep 30, 2021 Dec 31, 2021 Mar 31, 2022 Numerator GAAP Income from operations $ 654,675 $ 609,269 $ 633
Slide 30: Reconciliation of Adjusted Income from Operations
Encore Capital Group, Inc. 30 Reconciliation of Adjusted Income from Operations (Unaudited, in $ thousands) Q2 2020 Q3 2020 Q4 2020 Q1 2021 Q2 2021 Q3 2021 Q4 2021 Q1 2022 Numerator GAAP Income from operations $ 219,692 $ 142,455 $ 124,213 $ 168,314 $ 174,287 $ 166,647 $ 124,023 $ 265,014 Adjustment
Slide 31: Reconciliation of Net Debt
Encore Capital Group, Inc. 31 Reconciliation of Net Debt 2018 2019 2020 (Unaudited, in $ millions) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 GAAP Borrowings, as reported $ 3,607 $ 3,530 $ 3,561 $ 3,491 $ 3,593 $ 3,530 $ 3,429 $ 3,513 $ 3,404 $ 3,354 $3,252 $ 3,282 Debt issuance costs and debt discounts 77
Slide 32: Impact of Fluctuations in Foreign Currency Exchange Rates
Encore Capital Group, Inc. 32 Impact of Fluctuations in Foreign Currency Exchange Rates Note: Constant Currency figures are calculated by employing Q1 2021 foreign currency exchange rates to recalculate Q1 2022 results. All constant currency values are calculated based on the average exchange rates
Slide 33: Calculation of Cash Efficiency Margin
Encore Capital Group, Inc. 33 Calculation of Cash Efficiency Margin Note: Last Twelve Months (“LTM”) Cash Efficiency Margin defined as (LTM Cash receipts – LTM Operating expenses) ÷ LTM Cash receipts, where Cash receipts = Collections + Servicing revenue (Unaudited, in $ thousands) Q2 2020 Q3 2020 Q
Slide 34: Cash Collections and Revenue Reconciliation
Encore Capital Group, Inc. 34 Cash Collections and Revenue Reconciliation 519 473 304 -46 -169 0 100 200 300 400 500 Cash Collections Recoveries Above Forecast (Over Performance) Expected Cash Collections Portfolio Amortization Revenue from Receivable Portfolios Q1 2022 Collections and Revenue Recon
Slide 35: Components of Debt Purchasing Revenue
Encore Capital Group, Inc. 35 Components of Debt Purchasing Revenue 304 471 +46 +121 0 50 100 150 200 250 300 350 400 450 500 Revenue from Receivable Portfolios Recoveries Above Forecast (Over Performance) Changes in Expected Future Period Recoveries Debt Purchasing Revenue Q1 2022 Debt Purchasing R